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Optical/IP

Contract Manufacturer Eyes Optics

At least somebody out there still believes in photonics. Even though the market is likely to be flat for another year or more, electronic manufacturing service (EMS) firms -- a.k.a. contract manufacturers -- still see optical components and modules as a growth vehicle.

EMS firm BreconRidge Manufacturing Solutions Corp. today announced an agreement to acquire the assets and intellectual property of Nortel Networks Corp.'s (NYSE/Toronto: NT) High Speed Modules business (see BreconRidge Buys Nortel Module Unit). The division provides OC192 modules for Nortel's OPTera product lines.

BreconRidge will take over Nortel's lease of a 330,000-square-foot manufacturing facility on Palladium Drive in Ottawa, and it has signed a three-year agreement to supply Nortel with OC192 modules. The dollar value of the deal was not disclosed.

The deal harkens back to 2001, when large EMS firms such as Celestica Inc. (NYSE, Toronto: CLS), Flextronics Corp. (Nasdaq: FLEX), and Solectron Corp. (NYSE: SLR) began creating photonics divisions. Many of them had worked with OEMs such as Cisco on a systems level, but they saw optical components as a viable area of growth. That perspective led to a flurry of optical-related acquisitions as the downturn accelerated (see Contract Manufacturers Consolidate).

BreconRidge's roots are in telecommunications, as the Ottawa-based company was founded in 2001 by Terence Matthews, also the founder of Newbridge Networks Corp. (NYSE: NN; Toronto: NNC). Matthews paved the way for BreconRidge's development by selling it the manufacturing division of Mitel Networks, in which he had acquired controlling interest early in 2001.

Even though the OC192 market isn't exactly on fire (not in a good way, anyway), the modules business plays into BreconRidge's overall strategy. Like most large EMS players, BreconRidge wants to offer design consulting, gaining extra revenues by helping its customers design their products for more efficient manufacturing.

"Optical might be slow, but there's a significant amount of room for our firm to play, given the amount of engineering talent it requires," says Shaun McEwan, BreconRidge CFO.

Along those lines, BreconRidge is offering jobs to the Nortel engineers from the High Speed Modules business, McEwan says.

"Over 90 percent of the Nortel Networks employees who are today part of the High Speed Modules businesses are expected to receive offers of employment from BreconRidge. This translates into about 100 employees," writes Brenda Valois, executive advisor to Nortel Networks' CTO, Greg Mumford, in an email to Light Reading.

— Craig Matsumoto, Senior Editor, Light Reading

verstand 12/4/2012 | 11:42:54 PM
re: Contract Manufacturer Eyes Optics Since 2002, Oplink has moved slowly but unsurely into OMS (Optical Manufacturing Services) space and attracted hardly any business. The entire strategy is still unclear. I don't know whether BreconRidge's Terence Matthews has any business model that will make OMS work. Besides contract manufacturing, EMS also serve as procurement agent, working capital financier and logistic planner for their clients. Can anyone shed some light on BreconRidge's strategy?
Peter Heywood 12/4/2012 | 11:42:51 PM
re: Contract Manufacturer Eyes Optics Nortel got back to us on Saturday with a correction: most staff will be offered a job by BreconRidge. This has been incorporated in the story.

Nortel also made the following points:

Quote

1) The agreement will enable Nortel Networks to essentially complete its plan to exit the optical components business, a decision which was announced just over a year ago.

2) Nortel Networks has moved towards a supplier partner strategy for the majority of its optical components requirements. Under this strategy Nortel Networks works closely with external vendors for its components needs and focuses its investments on the systems side of the optical business, where Nortel Networks has greatest competitive advantage.

3) The deal which also includes the assignment of Nortel Networks lease for the Palladium, a state of the art facility located in Ottawa, will allow Nortel Networks to reduce its cost structure and focus its investments on strengthening its core businesses

Unquote

Physical_Layer 12/4/2012 | 11:42:42 PM
re: Contract Manufacturer Eyes Optics I'm not sure that this OC-192 module group from Nortel has that much to do with optical assembly. My understanding is that most of it is electrical assembly, with some small stuff like photodiodes to attach, etc. Most of it seems to be along the lines of what the EMS companies already do.
dwbh 12/4/2012 | 11:42:34 PM
re: Contract Manufacturer Eyes Optics PL -
Certainly the electrical assembly, or photonic assembly as is this case, is a little more involved than simply attaching the "small stuff", but your point regarding their buiness model being along the lines of what EMS comapnies (like Flextronics, and to a lesser extent Solectron and Celistica) already do is right on. Oplink, along with these guys, are Johnny Come Lately's, bravely willing to spill their own blood on the Alter of Tomorrow's Forecast. I wonder which one will go down first.....any bets?
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